A Long Overdue Change to Campus-Based Aid

The higher education plan that President Obama unveiled last week should be applauded not only because it would hold colleges accountable for their “affordability and value” but also because it would overhaul the highly-inequitable funding formula that the government uses to allocate campus-based student aid funds.

The campus-based programs – Federal Work Study, Perkins Loans, and Supplemental Educational Opportunity Grants (SEOG) – are intended to supplement Pell Grants for low-income students and to provide aid to students who just miss the cut off for the grants. Unlike Pell Grants, which are awarded directly to students, campus-based aid is distributed to colleges, which add their own dollars to the programs and then provide the money to students.

The president’s plan calls for shifting these funds away from colleges that fail to keep their net prices low and toward institutions that keep their prices down, provide good value to students and their families, and enroll and graduate “relatively high numbers of Pell-eligible students.” In a fact sheet it released on Friday, the White House said that campus-based aid is in need of an overhaul because funding for the programs “is distributed under an antiquated formula” that rewards colleges simply because they have participated in the programs the longest.

The Obama administration is right – the campus based programs no longer serve the neediest students well. The bulk of the aid goes to elite private and public colleges and universities, even though low-income students predominantly attend two-year and four-year state colleges and for-profit schools.

The roots of these disparities go back nearly 45 years. From the late 1950’s through the 1970’s, the federal government set aside campus-based aid for each state. Regional boards reviewed applications for the funds from colleges, which competed on the basis of the need levels of their students. But over time, federal officials grew concerned that wealthy institutions that employed savvy aid administrators skilled in the art of creative grant writing were getting the lion’s share of the funds, while institutions that were far more deserving were being shortchanged.

In the late 1970’s, the Carter administration proposed a new method for allocating campus-based aid. Under the administration’s plan, which it began to carry out, institutions’ share of the funding, or “base guarantees,” were to be phased out, and the entire pool of money was to be awarded according to the financial need of the students attending the colleges.

In 1980, however, powerful New England senators went to bat for the high-priced private colleges and public flagships in their states that were in danger of losing large sums of money. While renewing the Higher Education Act, these lawmakers pushed Congress to reverse the administration’s actions and guarantee that colleges in the programs would get the same proportion of aid money they had received in the past.

The results of this law continue to be felt today. Because funds are distributed based largely on the formula set in 1980, two-thirds of the money Congress appropriates each year for work study and SEOG go to the private colleges and public flagship universities that have dominated the programs since their start, leaving little money for the schools that enroll the largest shares of low-income students. This problem has been compounded in recent years, as the programs’ budgets have stagnated.

Of particular concern are the disparities among colleges participating in the SEOG program, which is meant to supplement Pell Grants for the most financially-needy students. Under the program, which received $734 million from Congress this year, colleges are required to award SEOG funds first to Pell Grant recipients, and then to other students who are deemed to have “exceptional need.” Because they receive a disproportionately small share of funding, many community colleges are forced to ration SEOG funds – and often run out of money before they are able provide awards to all their students who are eligible for the maximum Pell Grant. In contrast, wealthier schools sometimes have to return excess SEOG funds to the government because they don’t have enough students on their campuses who fit the “exceptional need” designation.

The Obama administration’s plan to change the campus-based aid formula is long overdue. But the White House is facing a major uphill battle, as the wealthiest and most powerful colleges in this country will not give up this money without a huge fight.

In our next post on campus-based aid, we will take a look at failed attempts by past administrations to change the funding formula. Stay tuned.

Tagged as: campus-based aid, College Affordability, Pell Grants, President Obama, SEOG, Student Aid, Work Study